Frustration with Canada’s slow progress in risk protection

Some U.S. produce industry leaders are losing patience with the slow progress in Canada’s search for a Perishable Agricultural Commodities Act-equivalent system of risk protection for produce sellers.

“The U.S. side continues to be frustrated,” said Matt McInerney, executive vice president of Irvine, Calif.-based Western Growers.

Domestic and foreign sellers of produce in the U.S. have been able to use the U.S. Department of Agriculture’s PACA trust protection since the mid-1980s. PACA allows produce sellers to be the first in line in the event of a bankruptcy of a U.S. produce company. The U.S. and Canadian trade have long desired a comparable system of risk mitigation in Canada.

Although the issue was a priority in the Canada-U.S. Regulatory Cooperation Council’s (RCC) action plan of December 2011, there still has not been definite progress on the key provision of the stated “common goal of protecting Canadian and U.S. Fruit and vegetable suppliers from buyers that fault on their payment obligation.” President Barack Obama and Canadian Prime Minister Stephen Harper announced the creation of the RCC earlier in 2011 and said they wanted to reach its goals by March 2013.

The “big ticket item” of ensuring that the suppliers get paid is still outstanding in the RCC process, said Anne Fowlie, executive vice-president at Canadian Horticultural Council, Ottawa.

McInerney said a lot of work has been done with U.S. and Canadian stakeholders on the issue to try to instill the urgency of reaching a practical, effective and economic solution for the produce industry.

“Here is what I believe is our golden opportunity, and certainly over the last year it seems to be floundering from the U.S. point of view,” he said. If progress isn’t made on the issue, McInerney said some produce operators in the U.S. want to withdraw some of the PACA privileges that Canadian suppliers enjoy when dealing with U.S. buyers.

Spokesmen for both the U.S. Department of Agriculture and Agriculture Canada could not be reached for comment.

RCC path

Canadian officials have discussed creating a unified system of dispute resolution, supported by government but with the industry providing the necessary tools for fair trading practices in the fruit and vegetable industry. That entity may be the Dispute Resolution Corporation, which now shares licensing responsibilities with the Canadian Food Inspection Agency.

When it comes to financial risk mitigation, however, Canadian officials have suggested that buyer or seller insurance may be part of the solution, an approach that U.S. industry leaders don’t believe will work.

Both growers and retailers believe that insurance isn’t equivalent to a PACA-like trust, McInerney said. Insurance is inadequate and unfeasible for the industry, he said, adding premium cost, coverage variabilities, deductibility and the complex logistics of accounting for people coming in and out of the industry.

“With the greatest of respect, we didn’t need the Regulatory Cooperation Council on risk mitigation to devise this innovative concept of account receivables insurance,” McInerney said. “It has been around for hundreds of years and it doesn’t work for the produce industry.”

Fowlie also said it is unlikely insurance will find favor with the Canadian or U.S. industry because of the added costs.

The RCC process may have only a few months before it expires and Canadian officials have not taken up the issue of a PACA-like deemed trust, where sellers would be given priority in bankruptcy proceedings, McInerney said.

“Prior to the clock running out on the RCC process we must have a PACA-like trust placed on the table for meaningful consideration and for discussion and debate to occur,” he said.

McInerney said there will not be another chance in this generation where the U.S. president and the Canadian prime minister come together to resolve trade issues.

Fowlie said Canada’s bankruptcy and insolvency law is reviewed every five years, and it is scheduled later this spring or summer.

If Canada doesn’t make progress, McInerney said the U.S. could move to place Canada in the same position as all other countries, requiring sellers from Canada to post bonds before they can bring any PACA actions against U.S. buyers. Currently, Canada is the only country exempt from the bond requirements. For example, if a seller from Chile brings a formal claim against a U.S. buyer for $30,000, the seller must post a double bond of $60,000 before a formal complaint can be heard. That is in place to discourage frivolous clams and provide a source of funds if a counterclaim against the supplier is made.

Historically sellers in Canada have had the bond requirement waived, but McInerney said the lack of progress may put that exemption in question. Continued Canadian access to the PACA trust doesn’t seem fair when the U.S. has been seeking similar protection but has not seen any momentum from the Canadian government, he said.

Topics:

About the Author:

Tom Karst

Tom Karst is national editor for The Packer and Farm Journal Media, covering issues of importance to the produce industry including immigration, farm policy and food safety.
He began his career with The Packer in 1984 as one of the founding editors of ProNet, a pioneering electronic news service for the produce industry. Tom has also served as markets editor for The Packer and editor of Global Produce magazine, among other positions.
Tom is also the main author of Fresh Talk, www.tinyurl.com/freshtalkblog, an industry blog that has been active since November 2006.
Previous to coming to The Packer, Tom worked from 1982 to 1984 at Harris Electronic News, a farm videotext service based in Hutchinson, Kansas.
Tom has a bachelor’s degree in agricultural journalism from Kansas State University, Manhattan.
He can be reached at tkarst@farmjournal.com and 913-438-0769. Find Tom's Twitter account at www.twitter.com/tckarst.